Online Advertisers Are Paying The Wrong People

In an earlier blog post, I talked about how sites that generate purchasing intent (mainly "content" sites) are being under-allocated advertising dollars versus sites that harvest purchasing intent (search engines, coupon sites, comparison shopping sites, etc). As a result, most content sites are left haggling over CPM-based brand advertising instead of sponsored links for the bulk of their revenue.

But there is an additional problem: e ven among sites that monetize via sponsored links there is a large overallocation of advertising spending on links that are near the "end of the purchasing process" (or "end of the funnel"). For example, an average camera buyer takes 30 days and clicks on approximately 3 sponsored links from the beginning of researching cameras to actually purchasing one. Yet in most cases only the last click gets credit, by which I mean: 1) if it's an affiliate (CPA) deal, it is literally usually the case that only the last affiliate (the site that drops the last cookie) gets paid, 2) if it's a CPC or CPM deal, most advertisers don't properly track the users across multiple site visits so simply attribute conversion to the most recent click, causing them to over-allocate to end-of-funnel links 3) if it's a non-sponsored link (like Google natural search links) the advertiser might over-credit SEO when in fact the natural search click was just the final navigational step in a long process that involved sponsored links along the way.

What this means is there are two huge misallocations of advertising dollars online: the first from intent generators to intent harvesters; the second from intent harvesters that are at the beginning or middle of the purchasing process to those at the end of the purchasing process. This is not just a problem for internet advertisers and businesses - it affects all internet users. Where advertising dollars flow, money gets invested. It is well known that content sites are suffering, many are even on their way to dying. Additionally, product/service sites that started off focusing on research are forced to move more and more toward end-of-funnel activities. Take a look at how sites like TripAdvisor and CNET have devoted increasing real estate to the final purchasing click instead of research. For the most part, you don't get paid for the actual research since it's too high in the funnel.

As with all large problems, this misallocation of advertising dollars also presents a number of opportunities. One opportunity is for advertisers to correctly attribute their spending by tracking users through the entire purchasing process (in the case of cameras, the full 30 days and multiple sponsored clicks). Very likely, these sites are currently overpaying end-of-funnel sites (e.g. coupon sites) and underpaying top-of-funnel sites (e.g. research sites). There is also an opportunity for companies that provide technology to help track this better. Finally, if over time advertising dollars do indeed shift to being correctly allocated, this will allow research sites to be pure research sites, content sites to be pure content sites, etc instead of everyone trying to clutter their sites with repetitive, "last click" functionality.